Thursday, August 20, 2009

convertible preferred stock

Convertible preferred stock is similar in conversion features and market behavior to controvertible bonds. Each share of convertible preferred is usually exchangeable for fixed number of shares (or fractional shares) of common stock issued by the same company. unlike convertible bonds, convertible preferred represents an ownership share in a company and will earn nothing if the firm‘s board of directors decide not to vote a dividend. Moreover, in the event of liquidation, preferred stockholders have a lower-priority claim on the issuing company‘s assets than do bondholders and general creditors. Therefore, convertible preferred stock is generally regarded as more risky investment than convertible bonds.
Nevertheless, preferred shares offer the potential for greater price appreciation than do most convertible bonds and a greater guarantee of annual income than is available with common stock issued by the same company. Issues of convertible preferred have grown quite rapidly in recent years, and more than 200 issues are now listed on the New York stoke exchange. Among the more prominent companies which have issued convertible preferred in the recent past are American Telephone &Telegraph, the Columbia Broadcasting System, household finance Corporation, Occidental petroleum, RCA, and union oil of California.

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